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Origins of the financial crisis and requirements for reform

Author

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  • Blundell-Wignall, Adrian
  • Atkinson, Paul

Abstract

This paper examines the causes of the global financial crisis (focusing in particular on why residential mortgage-backed securities and credit default swaps exploded from around 2004) and the policy reform agenda. Arbitrage opportunities in capital rules and the tax system were available, and changes in regulations affecting the leverage of international banks (IBs) played a key role in allowing these opportunities to be exploited on a greater scale. Changes to the Basel rules also actively contributed to the sharp rise in toxic securities. The policy agenda focuses on the need to deal with toxic assets, and for broader reforms to incentive structures, not only of capital rules, but also of corporate governance and banking structures. Specific policy reform recommendations are made. Recent numbers on the capital needs of banks suggest that we are not very far into the process of dealing with the crisis, and lack of transparency in this respect is a major issue in Europe. The longer-run reform process too is not focusing on the ideal building blocks.

Suggested Citation

  • Blundell-Wignall, Adrian & Atkinson, Paul, 2009. "Origins of the financial crisis and requirements for reform," Journal of Asian Economics, Elsevier, vol. 20(5), pages 536-548, September.
  • Handle: RePEc:eee:asieco:v:20:y:2009:i:5:p:536-548
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    References listed on IDEAS

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    1. George A. Akerlof, 2009. "How Human Psychology Drives the Economy and Why It Matters," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(5), pages 1175-1175.
    2. Adrian Blundell-Wignall, 2007. "Structured Products: Implications for Financial Markets," Financial Market Trends, OECD Publishing, vol. 2007(2), pages 27-57.
    3. Raghuram G. Rajan, 2005. "Has financial development made the world riskier?," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, issue Aug, pages 313-369.
    4. Adrian Blundell-Wignall, 2008. "The subprime crisis: Size, deleveraging and some policy options," OECD Journal: Financial Market Trends, OECD Publishing, vol. 2008(1), pages 29-53.
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    Cited by:

    1. Reddy, Kotapati Srinivasa & Nangia, Vinay Kumar & Agrawal, Rajat, 2014. "The 2007-2008 global financial crisis, and cross-border mergers and acquisitions: A 26-nation exploratory study," MPRA Paper 60148, University Library of Munich, Germany.
    2. Claessens, Stijn & Kose, M. Ayhan, 2010. "The financial crisis of 2008-2009: Origins, issues, and prospects," Journal of Asian Economics, Elsevier, vol. 21(3), pages 239-241, June.
    3. repec:pal:jbkreg:v:18:y:2017:i:4:d:10.1057_s41261-016-0003-2 is not listed on IDEAS

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